Report 94123 Summary - January 1996
California Community Colleges:
The Chancellor's Office Inadequately Controlled Its Economic Development Program and, Along With the Department of Education, Circumvented State Contracting Procedures
The Chancellor's Office:
The Chancellor's Office and the Department of Education:
- Circumvented state controls by using fiscal agents.
- Submitted erroneous and misleading information to the Department of General Services.
The Board of Governors of the California Community Colleges (board) was established to provide statewide leadership to California's community colleges. The Legislature appropriates funds to the board for the support of the Chancellor's Office and for various local assistance programs administered by the community college districts, such as the Economic Development Program. The mission of the Economic Development Program is to advance California's economic growth and competitiveness through quality education and services. To accomplish this mission, the Chancellor's Office awards grants to various community colleges throughout the State to support the community colleges' efforts to provide education, training, and technical services to California business and industry. Our review focused on the Chancellor's Office's procedures for awarding Economic Development grants and monitoring and reviewing grant expenditures. Specifically, we noted the following concerns:
- The Chancellor's Office's annual Economic Development Program Funding Plans state that it uses a competitive process to award grants to community colleges. However, for 33 of the 53 grants we reviewed for fiscal years 1992-93 and 1993-94, the Chancellor's Office could not provide evidence that it used a competitive basis to award the grants.
- The Chancellor's Office did not adequately monitor and review grant expenditures to ensure that community colleges were complying with grant requirements. Specifically, the Chancellor's Office did not ensure that community colleges submitted required financial reports and did not adequately review the reports that it did receive.
- Community colleges did not always spend funds in accordance with the approved budget. For example, Chaffey College used a portion of its fiscal year 1993-94 grant to purchase computer equipment costing $41,000. However, the approved grant did not authorize any funds for the purchase of equipment.
- Community colleges did not always comply with other grant requirements. For example, four of the five community colleges we tested did not provide adequate matching funds for at least one of the grants they received.
- The State Center Community College (State Center) may have
incurred excessive travel costs. For example, State Center exceeded
its per diem rate for meals in at
least 51 instances. As a result, State Center paid approximately $10,000 more for meals than per diem rates allow.
- The Chancellor's Office inappropriately used Chaffey College as a fiscal agent to pay contractors who were working at State Center.
- The Chancellor's Office inappropriately used an interjurisdictional exchange contract, thereby incurring additional costs to the State of approximately $15,500. Specifically, the Chancellor's Office continued to pay its deputy chancellor through an interjurisdictional exchange contract with State Center from July 1991 through June 1994, even though he had been appointed to an exempt position in July of 1991.
We were also asked to determine whether the Chancellor's Office used federal funds for the program in accordance with the Vocational Education State Plan (state plan). The state plan addresses Vocational Education programs rather than Economic Development programs; however, because our initial review of contracts that the Chancellor's Office and the Department of Education (department) issued to obtain assistance in preparing the state plan raised concerns, we expanded the scope of our audit. Specifically, we examined the process that the Chancellor's Office and the department used to obtain the services of community colleges and a private contractor to prepare the state plan for 1994-96. During this review, we noted the following concerns:
- The Chancellor's Office and the department circumvented state controls by using fiscal agents to obtain the services of The Resource Group (contractor) to prepare both the Vocational Education needs assessment and state plan. The Chancellor's Office and the department paid these fiscal agents approximately $62,000 in administrative fees. Furthermore, the $1.2 million paid to the contractor exceeded the budget for the needs assessment and the state plan by approximately $120,000.
- The Chancellor's Office and the department submitted erroneous and misleading information to the Department of General Services as support for its requests for approval of contracts and amendments.
- The Chancellor's Office allowed the contractor to begin work prior to approval of its sole-source contract and the department allowed the contractor to perform services without having any formal agreement with either the department or its fiscal agent.
- Employees at two of the entities that the Chancellor's Office and the department used as fiscal agents, Chaffey College and East San Gabriel Valley Regional Occupational Program, had recently been employed by the contractor. Therefore, by using them as fiscal agents, the Chancellor's Office and the department may have caused them to violate the common law doctrine against conflicts of interest.
- By using fiscal agents, the Chancellor's Office and the department lacked control over payments made for the needs assessment and the state plan. Therefore, the two agencies cannot ensure that the amounts paid to the contractor were appropriate or reasonable.
The board has adopted new policies regarding approval and use of grants and contracts at the Chancellor's Office. Specifically, in September 1995, the board adopted a policy stating that contracts must be reviewed by it if amended in such a way as to make them exceed either $100,000 or three years in duration, or if they involve consulting services over $50,000.
The board also adopted a policy that requires the Chancellor's Office to seek board approval before entering into any grants which exceed $100,000 or three years in duration. Although the revised policy improves control over the process for awarding grants, it includes a provision that states that the new procedures shall not apply to grants distributed on an allocation formula basis that has been reviewed and approved by the board. Since many of the grants awarded by the Chancellor's Office are distributed based on an allocation formula basis, including grants for the Economic Development Program, those grants would be exempt from the revised board policies. Therefore, the board should reconsider the provision in its policy that excludes these grants.
In addition, the Chancellor's Office has created a Grants and Contracts processing unit as part of the Fiscal Division. This unit processes grant awards, verifies and logs quarterly and final fiscal reports, and reconciles fiscal data with the accounting unit. Specialists in the Economic Development and Vocational Education Division monitor the programmatic aspects of the grants. Finally, the Grants and Contracts unit maintains the master files for audit purposes.
The Superintendent of Public Instruction of the Department of Education has implemented new policies regarding approval and use of contracts at the department. Specifically, in January 1995, the superintendent issued a policy stating that effective immediately she will review all proposed contracts. In addition, she stated that requests to extend contracts beyond the original ending date must be accompanied by a full explanation of the reason for the extension and a summary of the work completed to date. The superintendent also stated that effective April 1, 1995, contracts not fully executed by the starting date will receive personal review by her as to the reasons for the delay. Furthermore, the superintendent discouraged the use of sole-source contracts, stating that any requests for such contracts will be closely reviewed and approved by her. Finally, she stated that it will no longer be acceptable to circumvent appropriate contracting procedures through Budget Act language that mandates a specific contractor.
To ensure adequate control over Economic Development Program funds, the Chancellor's Office should:
- Comply with its policy of using a competitive process to award Economic Development grants;
- Monitor and review grant expenditures to ensure that community colleges are complying with grant requirements; and
- Require community colleges to comply with the State's per diem policy for travel expenses.
The Chancellor's Office should also reimburse the State for the amount of unnecessary costs incurred as a result of its inappropriate use of an interjurisdictional exchange contract.
The Chancellor's Office and the department should:
- Discontinue the use of fiscal agents to circumvent state controls;
- Comply with state requirements for awarding contracts and submit complete and accurate information to the Department of General Services when requesting approval of contracts;
- Ensure that the Department of General Services has approved its contracts before allowing contractors to commence work; and
- Determine whether the amounts paid to the contractor for the needs assessment and the state plan were appropriate and, if necessary, recover any overpayments.
The Chancellor's Office agrees with many of the findings in the report and it plans to give serious consideration to our recommendations. However, the Chancellor's Office disagrees with our conclusion that by paying the deputy chancellor through a contract with State Center it circumvented the state budget process and it created a conflict of interest by allowing the deputy chancellor to approve grants to State Center. In addition, the Chancellor's Office did not agree that State Center incurred excessive travel costs. Finally, with respect to payments for the state plan, the Chancellor's Office disagrees with our conclusion that it can neither assure that it received the services it paid for, nor that the costs paid for the services were reasonable.
The department generally supports the recommendations for ensuring compliance with state contracting requirements. However, the department disagrees with our final recommendation suggesting that it determine whether amounts paid to the contractor were appropriate.